Selling Dreams

The economic turmoil has prompted many to ask, "Would a Torah-based economy be more immune to the mess we're in?"

Some people have pointed at issues of honesty and greed as being the Torah's rectification for a situation such as this. While it is certainly true that the Torah exhorts us to be honest in our dealings and frowns upon greed, it is hard to see this as the salient point regarding the current financial difficulties.

For one, the economic collapse was not brought on by any egregious issues of integrity. (The Madoff scheme, as bad as it is, was not the cause of the collapse; probably the reverse is true.) Yes, banks were aggressive in their lending practices, and corners were cut in approving loans. But any healthy marketplace includes energetic and ambitious vendors hawking their wares tirelessly. A visit to any of the "shuks" worldwide is sufficient to confirm this.

Society is built by people pushing themselves mercilessly for person gain.

And, yes, greed is a negative personal trait. But society is built by people pushing themselves mercilessly for person gain. Communist society fell apart precisely because there was no greed fuelling the appetites of entrepreneurs. No one had any gain from production and therefore apathy and lethargy were the prevalent mood of the workforce.

Furthermore, we don't need the Torah to tell us that dishonesty and excessive greed are wrong. Yet these weaknesses are part of human nature and difficult to resist. Is there any specific element of the Torah's laws on commerce that would help prevent the consequences of human weakness, and not just exhort them to do good?

Jewish laws of commerce do address one of the root issues with our economy. There is a very fundamental principle of Torah jurisprudence called "smichas daas". Loosely translated, it means a 'full commitment of the mind.' Under common law, any agreement signed and sealed between two parties is binding. Their agreement demonstrates a meeting of minds that obligates each party. The core of the contract is the obligation to keep one's word. The only test that needs to be applied is that the agreement was made freely and with full knowledge. Yet the Torah adds another qualifier: "smichas daas," identifying whether the human mind really commits itself to the deal.

A popular example of an agreement that fails this test is most forms of gambling. Although the person has verbalized his agreement, we evaluate that deep down he does not really intend to lose and pay for it. It is therefore not valid and the person collecting a bet is, according to Jewish law, wrong in doing so.

You cannot sell something that does not yet exist.

Another example, and this is closer to our point, is buying something that does not yet exist. If I sell you the rights to buy a house that I have not yet acquired, the sale is not valid. If I sell you the profits that I will receive from a deal, it is invalid. The exception to this rule is that when I buy a tangible object in order to gain from its future produce, then it is valid.

Thus if I sell you "all my rental profits for the year," it is invalid. That money is a nonexistent, non- tangible entity. Contrast this with selling a stake in a specific apartment complex for its rental income [as opposed to other possible benefits] which is valid. The reason is that as long as something is intangible and unreal no one commits full-heartedly -– there is no 'smichas daas' -- and therefore the transaction is null and void.

Stock Options

If we look at the financial vehicles developed over the last few decades, we notice that they are less and less tangible and more in the nature of 'promises on a future.' Stock prices tend to be based not on the value of a company but rather its anticipated value. Options for stocks are the anticipation of an anticipation. Securitizing mortgage loans means that the 'promise to pay' itself can be sold and bartered.

There is a reason why we have developed such a melange of exotic financial instruments. It has a lot to do with greed and the fetters of reality.

In a primitive society wealth has very clear boundaries. There are just so many figs, goats and tents in the world. Once I have acquired all of them, there are no more 'things' to acquire. However, once currency is introduced, it is possible to acquire 'wealth' without asking oneself if the money represents or means anything. But even money is limited in its accumulation. If one owns even a very successful business, it will still generate only a fixed percentage of profit. Unless one is a monopoly charging unregulated amounts of money, for a very necessary item, progress is slow.

Enter stocks. I can take a business that makes a fixed amount and cash in on 'an anticipation of profit' that is worth more than the actual profits. I can now go still a step further, and sell options to buy the stock and profit from an expectation (the option) about an expectation (the stock). And so on.

This financial system is to greed what fantasy is to desire. We protect our wishes and mistake them for reality. We revel in 'profits' that are simply a fantasy. As soon as there is the slightest indication of a downturn, we perceive our house of cards for what it really is and it all collapses.

Greed must always be checked by reality.

The Torah has evaluated the essential human psyche. We revel in fantasy but are confident only with reality. Greed drives the world, its commerce and productivity, and on that score it plays a positive role. But it must always be checked by reality. When commerce stands on solid ground, people avoid hard landings.

The Torah, even in its regulation of secular fiscal interaction, gave us a way of life that harnesses the positive aspects of ambition and entrepreneurship while guarding us from the dangers of economic fantasy. So long as our dealings are a bartering of tangible goods and the profit of real accomplishment, then it is valid. But once we have crossed into the realm of the fantastic, and the only goods we are marketing are dreams, then we have lost the right and protection of contract enforceability.

A viable economy must rest on the most solid pillars of reality; it cannot float on the clouds of illusion.

The opinions expressed in the comment section are the personal views of the commenters. Comments are moderated, so please keep it civil.

Visitor Comments: 8

(8)
Anonymous,
June 16, 2009 9:11 AM

Thank you very much

(7)
Anonymous,
May 21, 2009 11:06 PM

sound advice

deal in the real.thank you for your article.

(6)
Steve,
May 20, 2009 3:38 PM

I get the impression that Rabbi Lopiansky is attempting to subtly defend the indefensible. This is a prime example of how when capitalism is deregulated and left unchecked eventually implodes from within. Honest and hard working Americans at the lower half of the totem pole get the shaft, while the rich fat cats at the top of the totem pole get huge pay days and golden parachutes for running our corporations and country into the ground. Does that sound fair and just to you? I think not!

(5)
Andy,
May 18, 2009 8:48 AM

both confusing and illuminating

"popular example of an agreement that fails this test is most forms of gambling. Although the person has verbalized his agreement, we evaluate "that deep down he does not really intend to lose and pay for it. It is therefore not valid and the person collecting a bet is, according to Jewish law, wrong in doing so."
It seems to me that most gamblers are expecting or at least aware that it is a real possibility to lose all or much of their bankroll which they put at risk. This was not the case with many of those buying into what they were led to believe were secure investments. Most of the public had no clue that they were playing a high risk game. I agree with Mr Levin [comment #1 ]that greed was the primary cause, but often the indiviual who got hurt [pension fund,401k,credit squeeze,or worse] was not being greedy, hence the public outrage. As you write confusion [mistaking fantasy for reality] allowed those "investment professionals"who were not outright con artists to be blinded to the reality of the situation. It's hard not to believe that it was primarily greed that blinded them. I think it was Freud who said we are all genius' when it come to rationalizing. Maybe he was unknowingly sharing some suppressed Torah wisdom and giving the yaitzer hara its due.
A troubling aspect to this is that those who were/are in a position to have studied Judaism's laws of commerce seem to have been just as vulnerable to being ensnared as those that didn't. It is disturbing primarily because of the desecration of God's name, and also because if knowledge will not prevent abuses what will? Maybe the example of draconian punishments? Don't know the answer.

(4)
Andrea,
May 18, 2009 1:11 AM

Excellent and Fascinating!

Succinctly and clearly explains what many of us have no doubt been wondering. Thank you for such a wonderful article.

(3)
Ariel Ben Yochanan,
May 17, 2009 5:40 PM

Good but insufficient

The points that Rabbi Lopiansky mentions are good ones but they are not sufficient in my view. Why? Because Torah economy differs dramatically from Western capitalism. Western capitalism is based on debt money-supply at an interest. It also assumes that needs are always higher than supply. In contrast, Jewish Torah economy is different. It assumes that Hashem provides the necessary and the money-supply is not debt based. Furthermore, there are cyclical correctives, the Shmitah Year and the Jubilee Year. These correctives change the very essence of property-valuation, in as much as the land and (nearly) everything else is Hashem''s and the property price decreases with time, just like our present day options time-values decrease in time. So, the correct and short answer is no, an economic crisis like the present one in a Jewish economy could not have occurred. Also because the very idea of a limited corporation is illegal under Jewish Law: we are responsible for our debts under halacha.

(2)
Robert,
May 17, 2009 3:50 PM

Stocks, options, futures- unreal?

Surely you're not equating these highly-regulated instruments with CDS's and CDO's, Rabbi. An option can be used by an investor to insure his investment in troubled times. A future can be used by a farmer to insure the price on his crops or by a manufacturer to guarantee the price of his raw materials. These mortgage derivatives were a desperate attempt to cap the risk of very questionable loans. I don't think that they are comparable to the former very valuable derivatives.

(1)
Andrew Levin,
May 17, 2009 1:15 PM

I just can't agree...

I simply just can't agree with the first few paragraphs. The collapse of our economy was predicated precisely by those who lent and borrowed money that couldn't possibly be repaid and the repackaging of those so-called subprime loans into securities. These securities where then sold virtually everwhere in the banking and investment industry. Once it became clear the loans would default, these securities very quickly became worthless. In the face of these losses, the banks simply stopped lending money and voila, the worst recession in at least 30 yrs was upon us. At the epicenter of this calamity was pure and simple greed.

I've been striving to get more into spirituality. But it seems that every time I make some progress, I find myself slipping right back to where I started. I'm getting discouraged and feel like a failure. Can you help?

The Aish Rabbi Replies:

Spiritual slumps are a natural part of spiritual growth. There is a cycle that people go through when at times they feel closer to God and at times more distant. In the words of the Kabbalists, it is "two steps forward and one step back." So although you feel you are slipping, know that this is a natural process. The main thing is to look at your overall progress (over months or years) and be able to see how far you've come!

This is actually God's ingenious way of motivating us further. The sages compare this to teaching a baby how to walk. When the parent is holding on, the baby shrieks with delight and is under the illusion that he knows how to walk. Yet suddenly, when the parent lets go, the child panics, wobbles and may even fall.

At such times when we feel spiritually "down," that is often because God is letting go, giving us the great gift of independence. In some ways, these are the times when we can actually grow the most. For if we can move ourselves just a little bit forward, we truly acquire a level of sanctity that is ours forever.

Here is a practical tool to help pull you out of the doldrums. The Sefer HaChinuch speaks about a great principle in spiritual growth: "The external awakens the internal." This means that although we may not experience immediate feelings of closeness to God, eventually, by continuing to conduct ourselves in such a manner, this physical behavior will have an impact on our spiritual selves and will help us succeed. (A similar idea is discussed by psychologists who say: "Smile and you will feel happy.")

That is the power of Torah commandments. Even if we may not feel like giving charity or praying at this particular moment, by having a "mitzvah" obligation to do so, we are in a framework to become inspired. At that point we can infuse that act of charity or prayer with all the meaning and lift it can provide. But if we'd wait until being inspired, we might be waiting a very long time.

May the Almighty bless you with the clarity to see your progress, and may you do so with joy.

In 1940, a boatload 1,600 Jewish immigrants fleeing Hitler's ovens was denied entry into the port of Haifa; the British deported them to the island of Mauritius. At the time, the British had acceded to Arab demands and restricted Jewish immigration into Palestine. The urgent plight of European Jewry generated an "illegal" immigration movement, but the British were vigilant in denying entry. Some ships, such as the Struma, sunk and their hundreds of passengers killed.

If you seize too much, you are left with nothing. If you take less, you may retain it (Rosh Hashanah 4b).

Sometimes our appetites are insatiable; more accurately, we act as though they were insatiable. The Midrash states that a person may never be satisfied. "If he has one hundred, he wants two hundred. If he gets two hundred, he wants four hundred" (Koheles Rabbah 1:34). How often have we seen people whose insatiable desire for material wealth resulted in their losing everything, much like the gambler whose constant urge to win results in total loss.

People's bodies are finite, and their actual needs are limited. The endless pursuit for more wealth than they can use is nothing more than an elusive belief that they can live forever (Psalms 49:10).

The one part of us which is indeed infinite is our neshamah (soul), which, being of Divine origin, can crave and achieve infinity and eternity, and such craving is characteristic of spiritual growth.

How strange that we tend to give the body much more than it can possibly handle, and the neshamah so much less than it needs!